Question: PLEASE EXPLAIN WHY THERE IS NOT A GAIN OR LOSS RECORDED ON THIS EXCHANGE Calaveras Tire exchanged equipment for two pickup trucks. The book value

PLEASE EXPLAIN WHY THERE IS NOT A GAIN OR LOSS RECORDED ON THIS EXCHANGE

Calaveras Tire exchanged equipment for two pickup trucks. The book value and fair value of the equipment given up were $39,000 (original cost of $93,500 less accumulated depreciation of $54,500) and $52,500, respectively. Assume Calaveras paid $8,500 in cash and the exchange LACKS COMMERCIAL SUBSTANCE. (1) At what amount will Calaveras value the pickup trucks? (2) How much gain or loss will the company recognize on the exchange?

Correct Answers:

1.) Value of pickup trucks = 47,500 (Book value + Cash paid)

2.) No gain or loss - CAN YOU PLEASE EXPLAIN WHY THERE IS NO GAIN OR LOSS RECORDED ON THIS EXCHANGE?

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